Basic Accounting Act # 5

GAAP refers to ________.

• A. General Accounting and Auditing Principles
• B. General Association of Accounting Practitioners
• C. Generally Accepted Accounting Principles
• D. Guidelines for Accountants, Accounting Procedures

The requirements that only transaction data capable of being expressed in terms of money be included in the accounting records relates to the ________.

• A. business entity assumption
• B. cost principle
• C. monetary unit assumption
• D. both b and c

Financial statements combining the operations of Juan Cruz and J. Cruz Plumbing Service would violate the ________.

• A. cost principle
• B. business entity assumption
• C. monetary unit assumption
• D. ownership assumption

The assumed continuation of a business entity in the absence of evidence to the contrary is an example of the accounting concept of ________.

• A. accrual
• B. comparability
• C. consistency
• D. going concern

Recording the purchase price of a pencil sharpener (with an estimated useful life of ten years) as an expense of the current period is justified by the _______.

• A. comparability principle
• B. going concern assumption
• C. matching principle
• D. materiality concept

Conservatism is best described as selecting an accounting alternative that ________.

• A. has the least favorable impact on owners’ equity
• B. is least likely to mislead users of financial information
• C. overstates, as opposed to understates, liabilities
• D. understates assets and /or net income

The financial statements prepared for the business are separate and distinct from the owners. This is in accordance with the _________.

• A. business entity assumption
• B. full disclosure principle
• C. going concern principle
• D. matching principle

The accrual basis of accounting is based primarily on ________.

• A. conservatism and matching
• B. conservatism and revenue realization
• C. consistency and matching
• D. revenue realization and matching

Accountants prepare financial statements at arbitrary points in time during a company’s lifetime in accordance with the accounting concept of ________.

• A. accounting periods
• B. comparability
• C. matching
• D. materiality

Expenses should be recognized at the time they are incurred such as when goods and services are actually used and not at the time when the entity pays for those goods and services.

• Consistency principle
• Disclosure principle
• Accrual Accounting Principle
• Objectivity principle